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ENVIRONMENTAL APPRAISAL

THE PARABLE OF THE BOILED FROG


All organizations are faced with a series of environmental changes and challenges. The principal difference between the effective and the ineffective organization is how well it responds, something that was encapsulated several years ago in one the most popular of management fables, the parable of the boiled frog. What is now referred to as the boiled frog syndrome is beside on the idea that if you drop a frog into a a pan of hot water, it leaps out. If, however, you put a frog into a pan of lukewarm water and turn the heat, up very slowly, it sits there quite happily not noticing the change in the waters temperature. The frog, of course eventually dies. The parallels with the management and development of any organization are or should be obvious. Faced with sudden and dramatic environmental change, the need for a response is obvious, Faced with a much slower pace of change, the pressures to respond are far less (this is the we are doing reasonably well and can think about doing something else at some time in the future phenomenon), with the result that the organization becomes increasingly

Concept of Environment
1. Refers to all external forces which have a bearing on the functioning of business. 2. Environment factors are beyond the control of individual industrial enterprise & their managements. 3. Environment gives opportunity or threat to the firms.

Characteristics Environment
1. Environment is complex 2. Environment is dynamic 3. Environment is multifaced. 4. Environment has a far reaching impact.

External & Internal Environment


External environment includes all factors outside, the control of organization which provide opportunities or pose threats to the organization. The internal environment provides strength or weakness within the control of organization (SWOT)

General versus relevant Environment attitude external environment The technology,


encompasses a variety of factors like international, national and local economy, social changes, demographic variables, political system,, towards. Business, energy source, raw material & other resources, and many other macro level factors known as general environment. Immediate concerns of the organization is confined to just part of general environment (relevant environment)

Components of Environment
Supplier Customers Interest/ Pressure Groups Competition Economy Govt. Regulations Technology Religion Organization Society Community

Components of Environment
of environment Seven important component are: 1. Social; 2. Political; 3. Economic; 4. Regulatory; 5. Market; 6. Supplier; 7. Technology;

Social Environment
Some of important factors & influences operating in the social environment are: 1. Demographic:- Population, Density, Sex, Rural Urban, Income Distribution. Age,

2. Social attitudes & values: Social custom beliefs, Rituals, Changing life style, & materialism. 3. Social Concerns: Such as Role of Business to Society Pollution Corruption Consumerism.

Social Environment
4. Family Structure:- Small family norms Breakage of Joint family system. 5. Role of women in society: Increase in working women 33% reservation levels (Parliament). Education

awareness. Rights and Work Ethics.

Social Environment
Social Environment is related to human Relationship, and the development, of such a relationship. Social environment effects the strategic management process within the organization, in the area of mission , objective setting and decisions related to products and markets.

Social Environment
Note: The Social changes take place slowly and do not seem to have an immediate effect/ impact on short term strategic decisions. Some social change are too prominent to be ignored. Example: Emergence of middle class. MTV Effect on Youth

Exhibit: The rise of the Indian middle-class According to the World Development Report for 1987 of the World Bank, the top 20 percent of Indias population have an income share of 50 pr cent of the GDP or a per capita income of the Rs. 10,000 and a family income of Rs. 50,000. This part of the population, consisting of 15 crore people, constitutes what is known as the rising middle-class of India. Owing to the black economy which largely benefits this class and the repatriation of money from abroad by non-resident Indians who mainly belong to this class, the rising Indian middle-class possesses the real purchasing power. By 2006 A.D., this class is expected to expand to the size of 40 crore and would, most probably, be the single largest middle class group in the world. There are important implications of the changing socioeconomic structure, taking shape in India currently for the economy in general and industry and business in particular. Much of the macro-level sectoral shift away from agriculture to manufacturing and services could be attributed, directly or indirectly, to the middle-class affulence. To the corporate sector, the middle-class provides more than a crore investors and a continuing demand potential for a variety of consumer items, ranging from detergents to refrigerators, and a number of

Environmental influences on the instant Foods Industry

Instant foods industry one of the sunrise industries that has come up well in India in the recent past. Essentially meant for middle and upper-middle class urban consumers, instant foods are a product line that offers considerable potential for growth. The business environment in which the instant foods industry exits at present could be explained in terms of the opportunities and threats operating currently.

Environmental influences on the instant Foods Industry

Opportunities are supported by factor like: High demand potential, estimated at around Rs. 20,000 crore. At present, the total industry output is just Rs. 300 crore. Rising personal incomes, emergence of nuclear families and rise in the number of working women. Availability of packaging material to keep instant foods fresh and unadulterated. Spread of television as a media for advertising. Threats arise due to factors like: Problem of acceptability, as Indians are typically used to eating fresh vegetables and foods. High taxes, as instant foods are considered a luxury item; direct and indirect taxes constitute 70 to 80 percent of the price of processed foods. High raw material costs. High overhead expenses.

Political Environment
The political environment consist of factors related to management of public affairs & their impact on the business. Important Factors The political system, ideological forces, political parties & centers of power. The political structure, its goals & stability. Political processes like operation of the party system, elections, funding of the elections, and to economic & Industrial legislation with respect promotion & regulations.,

Political Environment
Political philosophy, Government Role Business, its policies & interventions economic & business development. Example: in in

Janta Government Forcing Coca-Cola IBM to leave 1977. Pepsi Cola factory in Punjab to deal with Punjab problem. Appollo Tyres Kerala Government Take over.

Economic Environment
The Economic environment consists of Macro level factors related to the means of production & distribution of wealth that have an impact on the business of an organization. Some Important Factors are 1. The Economic stages existing at a given time in a country. 2. The economic structure adopted, such as capitalistic, socialistic or mixed economy. 3. Economic planning : budgets etc. five year plan annual

Economic Environment
4. Economic Policies: Industrial, monetary and fiscal policies. 5. Economic indices like distribution of income. national income,

6. Rate of saving & investment, value of exports & imports, the balance of payment. 7. Infrastructure factors: Such as financial institutions, banks, transport, communication.

Economic Environment
Examples: 1. Liberalization 2. Public saving in India from Fixed assets & Precious mental to stock markets & company deposits, leasing & financing companies, mutual funds, venture capital, entry of bank & financial institutions in stock market. and Now with scams after scams and Mismanagement of funds. Back to square one.

Regulatory Environment
Consists of factors related to planning, proposition, and regulation of economic activities by the Govt. that have impact on the business of an organization. Some Factors are 1. Industrial policy and licensing. 2. MRTP. 3. Legislation related to company operation. 4. Capital issues control & control over stock exchange.

Regulatory Environment
5. Import and export control. 6. Foreign exchange control. 7. Control over foreign investment. 8. Control over distribution & pricing. 9. Control over dev. & Reg. of industries. 10.Control through consumer protection. Control of Environment pollution Excessive control & no control both are dangerous. Love & hate relation between Govt. & Industry is the prevailing situation.

Market Environment
The market environment consists of factors related to the groups & other organizations that compete with & have impact on markets & organizational Business. Some Important Factors are 1. Customer Needs, preferences, perceptions, attitudes, values, bargaining power, buying behavior & customer satisfaction.

Market Environment
2. Product Factors Demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation & availability of substitutes of products & services. 3. Market Intermediaries. Level of customer service, middleman, distribution channels, logistics, costs, delivery system and financial intermediaries. 4. Competitors. of Type of competitors, entry & exit of major competitors,nature competition.

Supplier Environment
factors. The supplier environment consists of factors related to cost, reliability and availability of production Some Important Factors are 1. Cost and availability, continuity of parts Raw& materials, components. 2. Cost & availability finance for projects. 3. Cost & availability of energy. 4. Cost & availability of Human Resources. sub-assemblies,

Supplier Environment
1. Cost & availability of plant & machinery. 2. Infrastructural support. Examples:Power shortages, roads, acute

shortage of certain raw material (Grasim pulp unit in Kerela) Japan and western world: - Hardly worries for supply of raw material & energy, Recently in USA California is having power shortage.

Technological Environment
The technological environment consists of those factors related to knowledge applied and the materials, machines used in the production of goods & services that have impact on the business of an organization. Some Important Factors are 1. Sources of technology: - Domestic or foreign, cost of technology, collaboration in and transfer of technology.

Technological Environment
2. Technology development, stages of dev, change & rate of change of technology, and R&D. 3. Impact of technology on human being, the man machine system, effect on environment. 4. Communication & Infrastructural technology in management. Strategist can ill afford to ignore technological changes because of the following It can change relative cost position. Create new markets & new Business segments. It can collapse previous business.

Technological Environment
Rising petrol prices technology automobile with fuel economy for

Technology reaches people through business, new discoveries would remain mere ideas in mind models in lab, but for business institutions. The economic prosperity of the nation depends on technology, 50% of economic growth of USA, UK, Germany, France, Japan has come form technological progress.

Technological Environment
Rise and decline of products & organizations Change of technology may spawn a major industry but it may destroy existing. Examples Transistors Vacuum Tube Todays Growth Product is tomorrow earthen pot Products like mortals, have life cycle introduction, growth, maturity, decline & abandonment.

Approaches to Environmental Scan 1. Systematic approach: - Information is collected approach


on regular basis regarding markets, customers, changes in lagislation & regulation, Govt. policies pertaining to organizations & Industry etc updating of such info is not only required for strategic management but also for operational activities. 2. Ad. Hoc Approach: - Special surveys & studies Approach to deal specific problems, such as, evaluate existing strategies, device new strategies. Change & unforeseen development may also be investigated with regard to their impact on

Approaches to Environment Scanning


3. Processed Form Approach: - use of Approach secondary date from Govt. & private agency. A highly systematic & formal procedure may be used as a proactive measure in anticipation of changes in environmental factors between the two extremes, some time issues related data is collected & processed for decisions.

Sources of Data for Environmental Scanning


1. Secondary sources: - News papers, magazines, Journals, Books, Trade & industry association, publication, Govt. publications, annual reports. 2. Mass media 3. Internal source. 4. External agencies like customers, Market research agencies, consultants. 5. Spying & surveillance.

Sources of Data for Environmental Scanning

Some Important Publications are: Census of India report. Five years plan report. Statistical abstracts of Indian union. Surveys (economic, Industries) Export import policy. Institutional Publications Bombay stock exchange directory. Publications of Market research agency (ORG), provides extensive data on demographic profile of customer. Publication by FICCI, Asso chom etc.

Methods & Techniques use for Environmental Scanning


There are two broad techniques Statistical forecasting Intuitive methods.

(Quick environmental scanning) technique


Uses scenarioWriting and four steps: 1. Strategists make observations about major events & trends in their Industry. 2. Then, they speculate on a wide range of important issues that might effect the future of their organization. 3. The Quest director prepares a report summarizing major issues & their implication and three to five scenarios report. 4. Report & scenarios are reviewed by the Group of strategist who. Identify feasible strategic options to deal with the evolving environment. The option are ranked and teams are designated to develop strategies.

Identify the environment factors.


A feasible approach in identifying the important environment factors is to test each factor with regard to its impact on the business of the organization and the probability of such an impact.

Impact of business
Probability Impact

High Critical High Priority To be watched

Medium Height priority - do Low priority

Low Low priority - do - do -

The issues which are likely to have high level of impact on org are critical issues & need immediate attention of the strategist.

Low

Med. High

Structuring Environment Appraisal


There are many technique to structure the environment appraisal one such technique suggested by Glueck is that of preparing an environment threat & opportunity profile ETOP, for an organization. Environmental threat and opportunity profile (ETOP) for a Bicycle Company
Environmental sectors Social Impact of each sector

Customer preference for sports cycles which are fashionable, easy to ride and durable No significant factor

Political

Structuring Environment Appraisal


Environmental

sectors Economic Regulatory Market

Impact of each sector

Growing affluence among urban consumers; exports potential high. Bicycle industry a thrust area for exports. Industry growth rate is 7 to 8 per cent per year; for sports cycles growth rate is 30 per cent; largely unsaturated demand. Mostly ancillaries and associated companies supply parts and components; ERP licenses for imported raw materials available Technological up gradation of industry in progress; import of machinery under OGL list possible.

Supplier

Technologicl

Up arrows indicate favourable impact , down arrows (if used) indicate unfavourable impact , while horizontal arrows indicate a neutral impact.

Structuring Environment Appraisal The preparation of ETOP provides a clear picture to the strategists of which sector, and the different factors in each sector, have a favorable impact on organization by means of ETOP a organization knows where it stands with respect to its environment.